So what explains the fall of the American "big three" automakers? Health care costs? Pensions? An undervalued Yen?
Kenneth Train and Cliff Wilson discover that the Japanese just make better cars:
We find that nearly all of the loss in market share for U.S. manufacturers can be explained by changes in basic vehicle attributes, namely: price, size, power, operating cost, transmission type, reliability, and body type. U.S. manufacturers have improved their vehicles’ attributes but not as much as Japanese and European manufacturers have improved the attributes of their vehicles.
The conventional wisdom of automobile marketing appears to be false:
Industry analysts stress that automakers benefit from having a "hot car" in their product line because it may draw attention to other vehicles that they produce. For many decades, a well-known axiom among the Big Three was: "bring them into the showroom with a convertible, and sell them a station wagon." Recently, GM tried to get buzz for the Pontiac G6 sedan that it hoped would spillover to its other products by giving away 276 of these vehicles on Oprah Winfrey’s television show.
It appears that consumers aren't so easily fooled.
So who's got dark matter now?
4 comments:
Sounds about right. I don't think it's much of a secret that the Japanese companies make better cars than US companies.
Interesting that their number 1 criterion that gives Japanese cars the advantage is price. I'd probably change that word to value. You can get more features in a Japanese car with the same money. It's not so much that GM doesn't produce desirable cars, it's that cars with similar desirability are priced lower in the Japanese brands.
Of course the price and value of a car is influenced by manufacturing costs. Materials costs are similar for all companies so the cost differential must be somewhere else. GM has a MUCH higher labor, pension, and medical costs (not to mention paying thousands of workers in their "job bank" to do nothing) than Toyota.
Or are you REALLY claiming that manufacturing costs don't have any effect on the ability to compete?
Brian: Manufacturing costs are certainly a factor, but not enough to account for most of the drop. Keep in mind that Japanese manufacturers build cars in the U.S., so they face many of the same issues as domestic automakers.
As far as I know, the pension cost issues are fairly recent, whereas the decline in market share has been ongoing since the 1970s.
... Ami.
Ami,
The labor and benefits costs at the big 3 have been a problem for decades. They've come to a head recently, but the Japanese and other non-European foreign producers have had a labor cost advantage from the beginning. Even the foreign cars built in the US have lower labor and benefits costs and they don't have the large retiree base or large job bank anchor.
Those factors were priced into the cars. In the past, people were more willing to pay a premium for buying American cars. The amount of premium they're paying is getting smaller. The authors of your paper tried to factor this in as brand loyalty.
Again, the issue isn't strickly price, it's perceived value. Are the consumers getting more car for the same money in Japanese cars? (Yes.) The manufacturing costs are a large part of the reason WHY GM can't produce a popular car in the under $X price range. In other words, a car with similar features might cost $15,000 from Toyota and $18,000 from GM. GM has a car for $15,000, but it isn't an equivelent car. Toyota is producing their car at a profit and GM is loosing money. GM can't price it lower to improve sales because they're already loosing money, while Toyota still has room to drop the price if the need to retain market share is great.
All of this steers consumers towards the Toyota instead of the GM. Manufacturing costs are a primary driver of this.
It's true that they had made some incorrect guesses about the desirable models at some points, but Toyota made some similar wrong guesses. The difference is Toyota was able to adjust it's production quickly without getting agreement from the UAW and adding more people to the job bank.
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